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You can save hundreds of dollars a month by buying a home instead of renting – especially if you can get today’s low mortgage rates, itemize your tax deductions and plan to live there for 7 years.

The most important housing decision that most consumers face is whether to rent or to buy. So to help them with this decision, we took a look at the key market factors affecting the cost of homeownership. First off, asking home prices have started to rebound and have risen by 2.3% year over year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%). This means that prices are lower relative to rents than they were a year ago. But more importantly, mortgage rates have fallen: the best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. Based on asking prices and rents during the summer of 2012, buying is now 45% cheaper than renting in the 100 largest U.S. metros, on average – that’s a savings of $771 a month. If you plan to stay in a home for 7 years, which is the average time that Americans traditionally live in a home before moving again,it is more affordable to buy than to rent in ALL of the 100 largest metros in the U.S.

Costs aside, the decision to rent or buy a home is very personal. There’s a strong emotional component: some people want the security of homeownership and others want the footloose freedom of renting. But the financial factors are also very personal because the decision to rent or buy depends on:

Can you qualify for a mortgage at the best rate available?

Which tax bracket are you in, and do you itemize your deductions?

How long will you stay in your home?

To calculate whether renting or buying costs less, we assume people can get a low mortgage rate of 3.5%, itemize their federal tax deductions and are in the 25% tax bracket, and will stay in their home for seven years. (Below, we’ll show how changing these assumptions can affect the rent-versus-buy math.) We do the following calculations:

First, we looked at all the homes for sale and rentals listed on Trulia in June, July and August 2012. On for-sale homes, we took the asking price and estimated what it would rent for; for rentals, we took the asking rent and estimated what it would sell for. That way, we can calculate the average rent and asking price for an identical set of properties in a metro area, for a direct apples-to-apples comparison. By looking at homes currently for sale or rent, we’re able to illustrate the actual housing options that consumers face right now.

Second, we estimated the total costs of renting and buying for the typical property in a metro over a seven-year period. We factored in all the costs of homeownership (e.g., closing costs, maintenance, insurance, taxes, etc.), along with the tax benefit of deducting mortgage interest and property taxes, as well as the proceeds from selling the home after seven years with modest home price appreciation. On the rental side, we factored in renters’ insurance and the security deposit. Finally, we calculate the net-present-value of all those costs to capture the opportunity cost of tying your money up in a down payment. This gives us the total cost of buying versus renting. We then calculated the dollar difference and percentage difference between renting and buying.

Finally, we looked at alternative scenarios of the costs of renting versus buying, by changing the mortgage rate, the income tax bracket for tax deductions, and the time horizon.

Where Buying is a Slam DunkWith a 20% down payment, a 30-year fixed mortgage rate at 3.5% and at the 25% federal tax bracket, homeownership is cheaper than renting in all of the 100 largest metros by a wide margin. There is no market where the financial decision is even close, so long as you plan to stay in the home for at least seven years, get 3.5% mortgage, and itemize your tax deductions. However, how much cheaper it is to buy a home than to rent really depends a LOT on where you live.

As always if you are looking to Buy or Sell your home… please contact our Team of Professionals today. We can help guide you through the process and help you reach your goals today.

But what if you can’t get the best mortgage rate, don’t itemize your tax deductions or stay in your home for less than seven years? Each of those raises the cost of homeownership, so buying wouldn’t be quite as good of a deal relative to renting. Here’s why each matters:

The best mortgage rates are available for people with the best credit scores – and a not-so-hot credit score could make your mortgage a full percentage point higher, which translates to at least a 10% difference in your monthly mortgage payment.

Itemizing your tax deductions lets you subtract your mortgage interest and property tax payments from your pre-tax income, which lowers your tax burden especially if you’re in a higher tax bracket. How much does not itemizing raise the cost of homeownership? It depends on your tax bracket and the amount of mortgage interest and property taxes you would deduct.

Selling a home in less than seven years after buying it means that you’re spreading your buying and selling closing costs overfewer years – making the average monthly cost of homeownership higher.

To see how your mortgage rate, tax bracket and time horizon affect the cost of renting versus buying, let’s look at several scenarios for a few large metros:

SCENARIO

New York

LA

Boston

Atlanta

3.5% mortgage, 25% tax bracket, stay 7 years (baseline)

-31%

-32%

-41%

-57%

4.5% mortgage *

-23%

-24%

-34%

-53%

Not itemizing tax deductions *

-18%

-21%

-30%

-50%

Stay 5 years *

-21%

-22%

-32%

-52%

4.5% mortgage, not itemizing, AND 5 years

3%

-1%

-12%

-40%

* For these scenarios, the factors not mentioned are the same as the baseline.

Take Los Angeles, for instance. The top row shows that if you can (1) get a 3.5% mortgage, (2) are in the 25% tax bracket and itemize your deductions, and (3) stay 7 years, it’s 32% cheaper to buy than to rent.

Change any one of those scenarios, and buying is still cheaper than renting but less so:

With a 4.5% mortgage instead of a 3.5% mortgage, buying drops from 32% cheaper than renting to 24% cheaper.

But all three – the 4.5% mortgage, not itemizing, and staying only 5 years – makes buying just 1% cheaper than renting – as the bottom row shows.

In New York, these same differences make buying 3% MORE expensive than renting instead of 31% cheaper. In fact, with a 4.5% mortgage, not itemizing and staying only 5 years, buying is more expensive than renting in Honolulu(by 13%), San Francisco (by 10%), and San Jose (by 4%), too.

In the other 96 of the 100 largest metros, though, buying is still cheaper than renting. In Atlanta, for instance, where buying is 57% cheaper than renting in the best of circumstances (3.5% mortgage, itemizing, and staying 7 years), buying remains 40% cheaper even with a 4.5% mortgage, not itemizing, and staying only 5 years. In fact, today’s low mortgage rates make it financially better to buy even if you only stay put for 3 years in many metros. But buying a home also involves a lot of time, emotional energy and financial risk, so we can’t really recommend buying a home that you plan to live in for just 3 years even if the financial calculation is in favor of buying. Money isn’t everything.

1) When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.
2) The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you’ll NEVER pay this tax at the time that you purchase a home or other investment property.
3) You’ll NEVER pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.
4) If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.
5) The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).
6) The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.

7) In any particular year, if you have NO income from capital gains, rents, interest or dividends, you’ll NEVER pay this tax, even if you have millions of dollars of other types of income.
8) The formula that determines the amount of 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax. For example, if you are single and have a total of $201,000 income, the 3.8% tax would NEVER be imposed on more than $1000.
9) It’s true that investment income from rents on an investment property could be subject to the 3.8% tax. BUT: The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.
10) The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.

(National Association of Realtors)

Lifestyles of Long Beach and Real Estate

Long Beach is comprised of communities that have something to offer everyone. These neighborhoods are all unique in their own ways. So if your looking to Buy or Sell your next home, work with a Local Team of Realtors that understands where we live.

For all of your Real Estate needs and more… Call Ricardo the Realtor. Assuring you that my team of Realtors will make your Real Estate dreams a reality.

April 11 – Roar In Belmont Shore – 6-9 p.m. on Second St. between Nieto and Corona avenues. Expected to include a car show, live music, driver autograph sessions and more! Charity event to follow at McKenna’s On The Bay, 190 N. Marina Dr., Long Beach.

April 12 – Tecate Thursday Thunder on Pine – 6:30-10 p.m. on Pine Ave. between 1st and 3rd streets. Among the activities: IZOD IndyCar Series pit stop demonstrations, freestyle motocross, live music, driver autograph sessions and the finals of the Tecate Light Miss Toyota Grand Prix of Long Beach!

April 13 – Toyota Grand Prix Charity Ball – 6-10 p.m. at the Westin Long Beach, 333 E. Ocean Blvd. Cocktail reception, dinner, dancing and live and silent auctions. Chance to bid on autographed items, original artwork and a ride in the 2013 Toyota Pro/Celebrity Race!

“5 Reasons to work with Ricardo the Realtor and the Long Beach Homes & Lifestyle Team”

Your Peninsula & Naples Island Realtor

1) “RicardoThe Realtor” can save you time…
When you begin your search for your home, one should always ask: “What is my borrowing limit? It is always a good idea to know what you qualify for first. By doing so, you will not waste precious time looking at homes that are below or over your price range. My team can get you started in the buying process by helping determine your buying power, your financial reserves and your borrowing capacity. LB Homes For Sale is on Twitter.

2) “Ricardo The Realtor” knows the area…
Once we know how much you can and want to invest in a new home, the next step is to determine where you want to live. If you are unfamiliar with the geographic areas, the schools and other pertinent information, Ricardo The Realtor can help you narrow and focus on your search. Our team has access to information about schools, recreation, taxes, utilities, zoning and other specific details that are important in your home buying decisions. Long Beach Homes For Sale is also on Facebook.

3) Long Beach Homes For Sale has access to the Largest Number of Available Properties…
“Ricardo the Realtor” and Coldwell Banker Beachside has the ability to identify and show you the largest number of homes that most closely match your price, size and location criteria.

Century 21 Beachside can also provide you with “Out Of Area” buyers through our worldwide relocation department. What that means to you if we are representing the sale of your property is the highest possible offers. Small local brokers/offices cannot offer you this service and have a much smaller sphere of client base. Long Beach Homes For Sale Team knows that in order to sell your home, Too Much Exposure is not a bad thing.

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5) “Ricardo The Realtor” has the experience to market your property to sell at a higher price…

If you are going to sell your home. You need someone who understands where “Buyers” are shopping. You would be surprised on how clueless some agents are.

If you are currently working with a realtor that is not providing you with results, call us.

If you are working with a realtor that thinks that putting your home on a common newspaper ad will get your property sold, call us.

If you are working with a realtor that is not holding your home open to everyone via different innovative avenues, call us.

If you are working with a realtor that thinks making a cd of your home will sell it, call us.

If you are working with a realtor that does not have a proper understanding on how to market your property online, call us.

There are a lot of details to take care of once you find your perfect home. Our team can help you write the Purchase Agreement, arrange for appropriate inspections, assist you with any contingencies and help with finance arrangements. When it is time to close, Ricardo The Realtor will let you know what to expect. Ricardo The Realtor is on YouTube.